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Updated July 3, 2000 12:01 am ET / Original Sept. 15, 2019 9:39 am ET

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Amazon's Outlook

To the Editor: I don't wish to quarrel with Ravi Suria's analysis of Amazon.com's financial condition (Up & Down Wall Street , June 26). But as a customer of Amazon.com and an author whose book is listed there, let me add a few words in Amazon's behalf.

Amazon has set the standard for customer service on the Internet. Order a book and the company keeps you informed about the status of the order -- order received, expect to ship in X days and, a day or so later, order has been shipped. In only a few days, the book is in your mailbox. Just compare that with the performance of some other Web retailers. One didn't even acknowledge receipt of my order. And if a local bookstore has to special-order a book for me, I get it faster, cheaper and easier from Amazon.

As an author, I wanted permission to set up a link from my Website, which advertises my book, to the page at Amazon where it can be ordered. Amazon replied to me in two days! Amazing. In comparison, getting a reply on a comparable question from Network Solutions -- the outfit that registers domain names -- can take months, if ever (well, it has been over a month since I sent them my first query). Gad, give me Amazon. Suria may be right. But if the market acknowledges superior performance, some miracle will be found to keep Amazon in business.

RICHARD G. CANNING Oceanside, California

To the Editor: Amazon's losses of $967 million on revenues of $1.92 billion in the past 12 months are beginning to reach "real money" levels -- even for Wall Street.

From a direct marketing -- or any other consumer-distribution business standpoint, for that matter -- it's highly unlikely that Amazon will ever turn the corner, unless it makes significant changes. Three possibilities:

1. Raise Prices: As anyone who has ever ordered anything from Amazon will tell you, this is a great company. Ordering is quick and painless. Delivery -- even without paying extra for express overnight service -- usually takes just one or two days, thanks to their many distribution centers. And customer service is great. I'd be willing to pay a higher price for the same item from Amazon (versus a competitor) and I believe most others would as well. Of course, some orders would be lost to lower-priced competitors, but overall this strategy would boost Amazon's gross margin.

2. Become a portal: By going this route, Amazon's merchandise business, in effect, becomes a loss leader. A monthly charge to members would offset the losses. Additionally, Amazon could then charge for ads, and could demand lower prices from suppliers -- given its captive audience. AOL and Yahoo have shown this strategy to be profitable.

Amazon, the unquestioned leader in pure e-commerce, will survive in one form or another.

HARRY HABER President Catalog Partners/USA Santa, California

To the Editor: I was writing a commentary about Jeff Besos and Princeton on Microsoft Word today. After I finished the rough draft, I used the spell-check. Word identified an error in Bezos, coming up with "Bozos" as an alternative. Given the financial condition of Amazon, Word may have been clairvoyant.

STEFAN P. KRUSZEWSKI Harrisburg, Pennsylvania

Hot Topic

To the Editor: I think you understate the real cash-depletion rates of many dot.com firms ("Up in Smoke," June 19). Why? Because EBITDA [earnings before interest, taxes, depreciation and amortization] -- your proxy for cash burn -- omits two potentially significant uses of cash: investment in fixed capital and investment in working capital.

Case in point: Webvan [which agreed last week to buy HomeGrocer in a stock transaction]. You say the home grocery delivery service burned through $43.76 million in cash in its most recent quarter. Overlooked in this calculation, however, was $45.12 million of capital spending and a $10.25 million incremental increase in net working capital. By my reckoning, Webvan's real cash burn was more like $99.13 million.

HEWITT HEISERMAN JR. Southborough, Massachusetts

To the Editor: While I am normally very impressed by Barron's accuracy and thoroughness, "Up In Smoke" failed to provide a true snapshot of 24/7 Media's cash strength. To suggest that we will burn through our cash in a half-year is outrageous.

In fact, 24/7 Media has pro-forma cash and marketable securities that exceed $200 million, which we believe is sufficient to carry us to break-even on a cash basis without the need to raise additional capital.

A key strategy we have used has been to strategically partner with other companies and help them grow while strengthening our own business. Two of these partnerships, with chinadotcom (Nasdaq: CHINA) and Network Commerce (Nasdaq: NWKC), resulted in our purchasing over 6.3 million shares of chinadotcom and over 4.3 million shares of Network Commerce. After their successful public offerings, 24/7 Media can sell such securities in the public market, subject only to limitations imposed by Rule 144 and quarterly window periods. In fact, we already have monetized 11% of our original holdings in chinadotcom, raising over $23 million in this year's first half.

Even at today's depressed market prices, the cash and marketable securities we have are more than sufficient to carry us past the first half of 2002 -- the point at which most analysts project we will achieve break-even on a cash basis. In addition, we have identified and will continue to seek opportunities to manage and reduce costs. Coupled with continued strong business growth, this could help to accelerate cash-flow break-even into the latter part of 2001.

DAVID J. MOORE President and CEO 24/7 Media New York City

To the Editor: In 30 years as a reporter and editor, I have never been subjected to such damaging and inaccurate reports as your two stories on the cash-burn rate of Internet companies.

One of the most important points: Your compilers apparently missed, in both articles, the fact that a substantial part of our expenditures were, in fact, non-cash. We were never within five months of burning our cash, and to imply yet again that we are still within 5.4 months of burning our cash, when we now have nearly $70 million in cash and spend $4.3 million a quarter, is misleading and damaging.

Shame on you.

LARRY KRAMER Chairman and CEO MarketWatch.com New York City

MarketWatch.com's cash holdings were augmented by a $56 million cash infusion after the cutoff date for our survey, a fact duly noted in the "Comments" column of our table. --EDITOR

However, the more important issue is whether some of these companies ever had profitable business models. Many keep pushing back their [estimate of when they will become] profitable. And even if they become profitable in the far future, their net profits are so small that the P/Es are in hundreds, if not thousands.

TIMOTHY QUEK New York City MarketWatch.com

Gold Pricing

To the Editor: I am a geologist who has worked in gold mining exploration and development for many years. When Rick Lombardi ("Is the Luster Returning?" June 26) states that the gold price "has continued a downward drift and now rests at a level equal to its approximate cost of production," he confuses cause and effect.

Gold is a commodity whose price is set in the marketplace. Producers whose cost is higher than that price will either lower their cost of production or shut down. When the price of gold drops, the high-cost producers close, effectively lowering the average cost to produce gold to the market price or slightly less. When gold goes up, mines with higher costs of production come on stream, which raises the average cost to produce gold to the market price or slightly less. There are a few operating mines with cash costs less than $100, so there will continue to be some gold production, even if the price drops to that level.

The cost to produce gold reacts to the gold price, not the other way around. This is the same for all commodities. Except where cartels or governments interfere with the free market, producers have to accept the price consumers are willing to pay.

Unfortunately for me, gold producers have a complete lack of pricing power, and this has been the case since governments stopped controlling the metal's price.

DAVID GRIFFITH Markleeville, California

American Martyr?

To the Editor: It is heartening to see one member of the editorial staff at Barron's is sensitive enough to social injustice to come to the aid of a prominent victim of unfair practices: I refer to Thomas G. Donlan's spirited defense, in various editorials, of that bullied martyr Bill Gates.

It's not surprising that a business publication is anxious to hold Gates' hand. Playboy would protest any civic suppression of a Henry Miller revival. But Donlan's antics of frustration rival those of Edgar Kennedy in a Laurel and Hardy film.

Donlan accuses Judge Thomas Penfield Jackson of mischievous dilettantism, insofar as he sees that jurist meddling in financial concerns of which he has only a vague appreciation. That is passing strange. I thought the legal profession had the responsibility of commenting upon many facets of life in this country, including financial matters. It is also a bit self-defeating for Donlan to accuse the judge of being an instant expert on economics while he is adjusting, figuratively speaking, his new judicial robes, so recently tailored for him by the opinions of the right wing.

As to the merits of the case, I will not comment, not being as bold as Donlan nor as wise as Judge Jackson. I did read an article in Fortune months ago which suggested strongly that Microsoft is not as benevolent in its dealings as the Salvation Army, though it has not attained that level of indifference to regulations exhibited by the late and lamented Jesse James organization.

PHILIP HAMMER St. Paul, Minnesota

Warren's Way

To the Editor: A few comments on what was written about Berkshire Hathaway in the June 26 Trader column:

" ... the adverse market reaction to a relatively routine operation shows that investors view Buffett as irreplaceable and don't like to be reminded of his mortality." You probably should have used the word "speculators" instead of "investors." People who have actually invested in Berkshire don't care very much about what price speculators trade the stock for from day to day.

"Buffett, after all, has been very conservative in the past year, sitting on a mountain of cash, shunning technology issues and refusing to buy back stock."

Buffett did offer to buy back stock directly from shareholders. But that was near its low, and I don't think he's upped the offer. I assume this does not fall under what you consider to be "buying back stock."

Yes, Buffett has been very conservative in the past year. But he has also been very conservative for the last 40 or so years. Personally, I think a little consistency is a good thing.

"There's no internal front-runner to manage its diverse operating businesses, which range from Geico to See's Candies to the Buffalo News." I'm not certain exactly how important this is. Were you aware that one of Buffett's tenets is that all of his 100%-owned companies are supposed to supply their own management? He basically says that he can't provide it. I don't think his successor will change this much. In fact, if the corporate HQ starts to resemble the bloat I see elsewhere, I may reconsider my ownership of Berkshire. I think 12.8 people is a great number for the corporate payroll.

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